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Total Cost of Ownership (TCO)
A financial estimate of the all encompassing costs of a single asset, or group of assets or and entire building, throughout its/their lifecycle, from acquisition to disposal or over another specified time period.



Purpose
The aim of TCO analysis is
  • To identify, quantify, and ultimately, reduce the overall costs associated with ownership of the asset(s).
  • To serve as a key performance indicator (KPI).


Scope Definition
The purpose of TCO is to help owners determine all the direct costs and indirect costs of their investment. The total discounted dollar costs of the following actions relative to a single asset or a group of assets:

       A.  By life stage
  • Owning/purchasing
  • Operating
  • Maintaining
  • Repairing
  • Renewing
  • Disposing 
      B.  By entity
      C. By expense classification
  • Operating costs
  • Capital reserves (such as roof replacement)
  • Non-capital reserves (such as maintenance - painting and contingencies)


Time Definition
Since it is very difficult to obtain or forecast data for total lifecycles of buildings, TCO is more realistically calculated over one of the following time periods:
In order to use TCO as a benchmarking tool, the data needs to be normalized over a time period.



Models
Cost distributions at different life stages are summarized in various life models, including:


Loads
TCO is a combination of the following three individual but interconnected loads:
If, however the calculation excludes certain categories, the naming conventions is suggested as follows:
  • TCOxE - Total cost of ownership excluding energy
TCO is use useful tool in engineering economics when performing a  defender and challenger analysis.



Quantification and Analysis

The TCO can be expressed in either current year dollars (CV) or calculated in future years dollars (FV).

The TCO can be expressed in the following ways.

  • Distributed by system (electrical, mechanical, etc)
  • Distributed by time (2020, 2021, 20122, etc)
  • Distributed by expense classification (maintenance, renewals, etc)
Comparing the Maintenance-Repair-Renewal (MRR) trade-offs at different organizations.
Fig. The impact of different levels of maintenance on the total cost of ownership (TCO).


Decisions should consider the whole life of assets, including the I-P interval and the P-F interva
Fig. In order to calculate the total cost of ownership (TCO) decisions should consider the whole life of assets.



TCO distributed across the different systems of a facilty or across the asset portfolio
Fig.  TCO distributed across the different systems of a facilty or across the asset portfolio. 


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Fig. TCO distributed by lifecycle stage: design, construction, operations, disposal.

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Fig. Table of the system cost distribution reflected in both current value (CV) and escalated to future value (FV).


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Fig. Model of facility lifecycle costs distributed by time, typically over a planning horizon or study period.


See also:


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